EU proposals to limit the amount of free emission permits in its cap-and-trade program boost industry costs, and are one reason Dow limited capacity expansion in the region for the past 12 years. That compares with Dow's $4 billion of US investment planned for the next four years.

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By MATHEW CARR

Bloomberg

Europes backfiring climate and energy
policies are adding to high natural gas costs and holding
back Dow Chemical's investment in the region, said the
companys director of global climate change policy.

European Union proposals to limit the amount of free emission
permits in its cap-and-trade program boost industry costs,
and are one reason Dow and other chemical makers limited refining capacity expansion in the region for the
past 12 years, Russel Mills said by phone from Zurich on Dec.
12.

That compares with the Midland, Michigan-based companys
$4 billion of US investment planned for the next four years,
he said.

Dow, the biggest US chemical maker, joined companies
including ExxonMobil in a Dutch court challenge to the European Commissions
decision to reduce the pollution rights it hands out to
factories, Mills said. Manufacturers may seek compensation of
about 4 billion euros ($5.5 billion) in total for the lost
free permits, according to Utility Support Group, an adviser
to some Dutch chemical factories on the matter.

It really is a slap in the face for
manufacturers, Mills said. Maybe they
underestimate the efficiency with which markets can work if
they are allowed to work.

Commission spokesman Isaac Valero-Ladron in Brussels declined
to comment when reached by e-mail.

Lower portion

The EU is seeking to curb a surplus of permits in its carbon market that pushed prices
to a record low and eroded the incentive for companies to
invest in emission-reducing technologies. The commission
decided in September to lower the handout of free allowances
to factories by 12% in the eight years through 2020.

Under the blocs emissions trading system, permits
to emit carbon dioxide are mostly allocated for free to
factories, which must surrender enough to match their CO2
output or pay fines. Power companies must pay for their
allowances. Mills and Utility Support Group argue the
commission isnt giving enough free carbon rights for
manufacturers heat generation and waste-gas production.

European gas prices are already relatively high, with the
cost of the fuel in the UK more than twice the level in the
US. BASF in Germany, Indias Tata Chemicals and
Lotte Chemical of South Korea shut plants in Britain this
year.

ExxonMobils Dutch unit is also appealing against the
commission decision to cut free allowances, Richard Scrase, a
Leatherhead, England-based spokesman for the company, said
Dec. 12. The move was a standard procedure to preserve
our rights in anticipation of more data transparency from the
EU commission on its calculation of free ETS
allowances, he said.

Europes adoption of renewable energy subsidies,
Germanys shift from nuclear power and the EUs
effort to support carbon prices are all adding to industry
costs, Dows Mills said.

Nations embracing carbon markets need to make it a low-
cost club not a high-cost club, he said.

EU carbon permits for December 2014
dropped 0.8% on Monday to 4.88 euros a metric ton on ICE
Futures Europe in London. The benchmark
contract was as high as 31 euros a ton in 2006.

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